Selling your Business – Lessons from my MSP M&A Experience

Is one of your New Year’s resolutions to sell your business or grow by merging with another? Then my upcoming series, a checklist of steps on the road to getting acquired, is my gift to you.

By Michael Contento, F12 Managing Partner, M&A Strategist

Now that my days as CEO and running My Blue Umbrella (MBU) are over, I work in mergers and acquisitions at F12 as an M&A strategist. And I love it. I get to meet other Managed IT Services executives from all over Canada who are exploring exponential growth or a succession plan by joining F12. I also own commercial real estate and a few pharmacies, so although my experience is primarily in the technology services industry, I want to share lessons that will be useful for any business owner.

In my role, I often put time and effort into a new connection only to discover: they’re not really an MSP. That is why I’m starting with a tough question for anyone looking to sell their business: are you really the business you purport to be? Don’t be offended, let me share my story for context.

 

Building my Business

I was the CEO of MBU for 26 years and started the company in my early 20s. I took MBU from a value-added reseller (VAR) to managed service provider (MSP) over several grueling years. Indeed, I poured all my energy into my company. We grew to be a nearly $10 million company with 30 employees. And then, when I knew we couldn’t scale anymore on our own, I began looking to partner with another MSP.

 

Exploring Acquisition Partners

When F12 came into the picture, I knew I had found the right strategic growth partner for MBU’s acquisition. But I needed to convince F12 that MBU was right for them. And so it began: the due diligence. Putting your company through due diligence is like doing a microscopic analysis of your body—it’s tough.

Buyers analyze every nook and cranny of your company, from top to bottom. It was a lot, but it gave me a fundamental understanding of my company that I didn’t have before. When the in-depth analysis was over, I had to face the hard truth: MBU wasn’t ready to be acquired. I had a checklist of changes we would need to make, targets we would need to hit, and a six-month timeline.

With determination and a never-quit mindset, we did it in only three.

 

Getting The Most Value

One of the aspects I needed to address after due diligence was the fact that MBU did not, in fact, have 50% recurring service revenue. One of the most important milestones for Managed Service Providers is having at least 50% of service revenue be recurring. Otherwise, you’re not an MSP. You’re a VAR.

A value-added reseller was the first incarnation of what we now know as an MSP. They provide hardware, sometimes software, and offer maintenance contracts. This is all very transactional. An MSP’s recurring revenue stems from the fact that they’re taking on the workload and financial risk of IT operations, which means they are not monetizing based on hours billed but on business IT functions outsourced.

Why does this matter?  Dollar for dollar, MSPs are worth more than VARs.

 

6 Things Every MSP Should Do Before Selling Their Business

So now you’re thinking, okay Michael, let’s get on with the checklist! But I’ve learned a lot over my career, and I want to give each valuable lesson the space it deserves. And that’s why come January, I’ll be kicking off a new series of articles on selling your business. It’s all about the mistakes I made along the way as I transformed MBU into an acquisition-ready business.

I’ve lived the lessons. Been the CEO. Been the seller. And now, I’m with the buyer. I know how to get from where you’ve been to where you can be. 

At F12, we want nothing more than to make sure we help business leaders achieve their goals. By addressing the topics in this series, you’ll be closer to your goal: getting the best value for your business. We’ll discuss how a business like yours can complete its checklist and get acquired.  This checklist will be of special interest if you are an MSP. Some of the topics in this upcoming series are:

  • Finding your “why” when it comes to selling
  • Know your asking price – what do you want?
  • Recurring vs. re-occurring revenue
  • Streamlined general ledgers
  • Knowing your ideal multiple
  • Recognizing the right revenue: rate per user, revenue per employee

I can’t wait to delve into these topics—and more. Check back here for updated links as I build out the checklist. 

 

Special Note for MSPs

The M&A team at F12 is looking for a partner who is continually building their business, who wants to be stronger together, and who wants to become a scalable, Canada-wide MSP. If you think that might be you and your company, contact me today about becoming collectively extraordinary with F12.